Sunday, May 30, 2010

Until the late 1960s Houston was primarily a hub for the oil and gas industry. But the oil boom of the 1970s launched the city on a trajectory to become the recognized international city that it is today. A panoply of skyscrapers built since then form an impressive and glittering core for the city. An increasingly diverse population has provided Houston with one of the hallmarks of big city life, superb ethnic restaurants of practically every kind.

The influx of oil and gas money has helped to finance the arts, both graphic and performing. Besides many excellent art museums Houston has its own opera, ballet and symphony orchestra. The museum district includes a natural science museum that I think is rivaled only by the Smithsonian. The Houston Zoo is what one expects in a city as large as Houston. And, there are the requisite sports teams familiar to all who follow professional sports.

While the Houston economy is more diverse than it was prior to the 1970s oil boom when oil and gas, chemicals and shipping dominated, these industries still broadly affect the overall economy since much of the service economy is dependent on them.

What struck me during a recent visit to Houston is that efforts to create a downtown with the kind of around-the-clock activity one sees in other world class cities such as Chicago or New York have so far not succeeded. Houston has long been a sprawled out, car-dependent city. Retail businesses now almost exclusively inhabit the malls, strip centers and small business districts that dot the Houston landscape. The retail that remains in the city center must live primarily off commerce conducted at midday by the plethora of office workers who populate the soaring towers that dominate the downtown.

The city has completed a light rail line that runs from Reliant Park, a football stadium and convention center complex south of the downtown; to the Texas Medical Center, one the world's leading complexes of hospitals and treatment centers; to the museum district and then into the downtown. The hope was that Houston residents would park at the Reliant Park complex and take the train downtown for work, events and shopping.

But old habits die hard. Rather than heralding the light rail line as a great achievement, Houstonians have become polarized over its costs, usefulness, and unintended consequences. It doesn't help that Houston's drivers were so befuddled by the presence of a train on their streets that in its first year of operation the city's single light rail line set an all-time annual record for vehicular crashes involving municipal light rail systems in the United States. Accidents have fallen markedly after new procedures were implemented.

Since Houston sits on soft sediments which run literally miles deep, it was impractical to build the light rail system underground. According to a friend who watched the progress of the above-ground construction, many of the retail establishments along the route were devastated and forced to close. Houstonians simply refused to brave the construction to patronize the affected businesses since it was easier to find what they needed at the many other strip centers and malls in the city. And, while the single line may seem underutilized, this is in part because it is only the first of six planned which would feed each other passengers from various parts of the city.

Perhaps most disturbing was that on a clear, dry, springtime Friday evening there was little activity within the confines of the great man-made canyons of the city center except for the theater district and the historic part of the city where a few restaurants and pubs remained opened. After 5 p.m. on weekdays the downtown almost empties out.

My friend, a real estate broker, reports that many new loft apartments and condominiums have been added to the downtown, and these are especially attractive to young professionals. But almost as soon as those professionals start to have children, they flee the downtown for single-family homes in neighborhoods. It seems impossible to build a critical mass of downtown residents who are needed to give it vitality after 5 p.m.

Houston has one very large impediment to the kind of active street life characteristic of successful city centers, an impediment that may elude the understanding of many Houstonians who merely cope with it as a background phenomena: Heat. During much of the year Houston is so hot and humid that most people prefer to stay indoors in air conditioning. The downtown district actually has an extensive set of tunnels and skybridges that allow people to avoid going outdoors and still move through much of the downtown. However intelligent such tunnels and skybridges may seem, the effect is to diminish the already sparse street life in the city center. And, without the "eyes on the street" provided by pedestrians, people don't feel nearly as safe, day or night.

While accidents of geology and climate seem to be conspiring to keep Houston's city center from ever becoming an analog to downtowns in New York or Chicago, there are plenty of examples of cities in hot climates with vibrant street life and healthy urban centers. It is the peculiar legacy of sprawling low-density development, car dependency, and an overreliance on air conditioning--people never let their bodies adjust to the heat--that spells a continuing uphill battle for those in Houston who would like to see its center pulse with activity through all the parts of the day.

Monday, May 17, 2010

Since I am currently traveling to do research for a large writing project, I am skipping my post for this week. I expect to post again on Sunday, May 30. In the meantime, I hope you'll take a look at my most recent column on Scitizen entitled "The Wages of Complexity."

While accusations continue to fly back and forth about who is to blame for the massive oil spill in the Gulf of Mexico and investigations commence into the recent wild one-day gyration in the American stock markets, the real culprit stands quietly and in plain sight in the corner: Complexity....Read more

Sunday, May 16, 2010

A surprising number of America's localities have made themselves increasingly dependent on casino gambling. Las Vegas and practically the whole state of Nevada need no introduction in this regard. There is also, of course, Atlantic City, New Jersey. And, there are the myriad riverboat casinos, Native American-run casinos, and casinos in many states limited to designated cities. The taxes from these gambling enterprises enrich both localities and states.

That means that nearly everyone in the United States directly or indirectly is dependent on the well-being of the FIRE economy whether they work in it or not and whether they have savings and investments or not. It means that governments at all levels have become dependent on tax revenues generated by this part of the economy. Given this, it makes sense that the federal government's economic recovery efforts have focused on financial companies--commercial and investment banks, insurance companies, brokerages, and, most critically, mortgage lenders. The aim has been to levitate both stock and real estate prices with the hope that confidence will be restored and growth will resume.

But as most people now know the FIRE economy depended for its profit on toxic subprime mortgages, dubious commercial real estate deals, heavily leveraged buying and selling of stocks and bonds, questionable and inscrutable derivative instruments, and the issuance of massive amounts of government debt to finance the American living standard in an era of low taxation.

This system has remained essentially unchanged despite belated attempts to rein in risk-taking and prosecute lawbreakers who duped investors. And, it is this system which we are trying to revive through bank bailouts, automobile company bailouts, huge government stimulus spending, and Federal Reserve Bank emergency measures including ground-hugging interest rates and massive purchases of low-quality mortgages.

It is a sign of just how preposterous and counterproductive this strategy will ultimately be that CNBC's Larry Kudlow is apoplectic over the wave of investigations now besetting Wall Street. His concern is that too much scrutiny of Wall Street's machinations will sink the economy which he rightly suggests is dependent on the FIRE sector for its well-being. If the government shouldn't investigate Wall Street and its co-conspirators in the FIRE economy because it might weaken the overall economy, and if maintaining a strong economy is the single most important task of the government, then perhaps Kudlow believes the government should never investigate these people for any reason. It's the equivalent of saying that we shouldn't investigate drug pushers for fear of creating hardship among addicts.

And, therein lies the problem. The whole nation including the government has become overly dependent on this parasitic part of the economy. We are told that it will be dangerous if we even try to make sure that those working in the FIRE economy don't bilk their customers or if we try to put into jail those who already have.

A healthier path would be to wean America off its addiction to the "gambling" revenues and profit generated by the FIRE economy by once again separating investment banks from commercial banks and heavily regulating commercial ones as mere public utilities for facilitating the day-to-day operations of the economy. We should also limit the size of insurance companies and banks, both commercial or investment, so that financial institutions are not in a position to blackmail the government into saving them when their bets turn against them. In other words, it will be possible simply to let them fail.

The incentives in these institutions should be regulated so that the managers do not get their bonuses immediately, but only after a period sufficient to make sure they are not simply pocketing profits now and saddling shareholders and the public with losses later. Taxes on financial transactions should be raised enough to discourage frequent trading. And, taxes should be levied as well on outsized profits so as to discourage the flow of society's precious capital into the nonproductive avenues of finance. And finally, most people should be actively discouraged from investing their money in speculative markets. Instead, society should find some way to have retirement money managed in a very low risk manner on behalf of the vast majority of people who know little or nothing about the risks they are taking in investing.

The first step to curing an addiction is admitting it. Wall Street took the public for a ride, an almost 30-year ride, promising endless prosperity and riches without work! It turned out to be nothing more than a vehicle to enrich the few at the expense of the many. But instead of acknowledging this fact, members of the public are once again being enticed by Wall Street to stick with what is essentially a gambling addiction. The government is abetting the financial industry with the sales pitch that Congress is going to reform the casino so that it will be a fairer place to gamble. (But, we aren't even going to do that with the current proposed reforms.)

The odds that throwing one's savings at risky stock, bond and commodity markets will again end in tears for the vast majority of average investors are almost 100 percent--just as they are for the losing gambler who goes back into the casino vowing to recoup his or her losses.

Sunday, May 09, 2010

Last week I spoke before a very committed group of juniors and seniors taking a college class on sustainable cities. In our discussion I suggested that one approach to improving public transit would be 1) to end all subsidies for fossil fuels, cars and trucks including road building and repair subsidies and 2) to place very heavy taxes on fossil fuels and the use and ownership of roadway vehicles. This I conjectured would make private investment in and ownership of city transit and intercity passenger rail attractive (which is the way it used to be) and could lead to a relatively rapid buildout and improvement of such services. But, I concluded, the first two steps are, of course, politically impossible.

My last remark evoked a spirited rebuttal from a woman in the class. She said, "I'm tired of people in your generation saying that everything we really need to do is politically impossible. All of us here are graduating soon, and we will be moving into positions of responsibility including ones in government. When we're the generation making the decisions, the things we need to do won't be politically impossible." Point taken. I promised in the future to tack on the words "right now" to any declaration that some action seems politically impossible.

With this exchange in mind, as the week unfolded, I began to notice that certain things which only a few months ago seemed "politically impossible" were now be trumpeted as possible and perhaps likely. Who would have guessed a few months ago that the U. S. Senate would be seriously debating whether the country's largest banks should be broken up into smaller banks? Who would have given such a move even the slightest chance of passing let alone a fighting chance? Even though the proposal was defeated, it garnered 33 votes. It seems doubtful that the issue is dead given the continuing rage against the large banks, and the possibility that another financial panic may result from the sovereign debt crisis in Europe or from a crash in China as its real estate bubble collapses. And, the financial reform bill as a whole which the Republicans and the big banks vowed to stop now seems headed for approval.

When the president first proposed changing the health care system to provide universal coverage, I gave such legislation no chance of passing. I was certain the insurance companies could sink any bill through attack ads, fake public demonstrations, a monstrous media relations disinformation campaign, and direct contributions to key members of Congress. Although I'm not particularly pleased with what did pass, I was completely wrong about whether something could pass. Apparently, it was not "politically impossible" to do so.

Circumstances, strategy, personalities, evolving political alignments and myriad other variables change what is politically possible and impossible from week to week, from month to month and from year to year. But, after being stuck in first gear for a long time, history seems to be on the move. The oil price spike, the financial crisis, a dramatic election that put the first African-American into the Oval Office--something that was previously deemed "politically impossible"--all seem to have shaken even the entrenched U. S. political establishment out of its torpor and made, in some cases, the unthinkable, thinkable and the politically impossible, possible.

At first blush readers might accept that these problems are all worthy of military intervention and perhaps beyond the capability of civil authorities to handle on their own. The response to the growing oil slick in the Gulf of Mexico now includes U. S. Coast Guard vessels and equipment and two cargo planes provided by the U. S. Department of Defense. BP, the oil giant that operated the rig, seems overwhelmed. The damage to Gulf Coast habitat, fisheries and tourism seems potentially catastrophic. And, the accident itself raises serious questions about the safety of offshore oil exploration, especially in deep waters. No wonder Homeland Security Secretary Janet Napolitano declared the spill to be of "national significance." The spill seems a natural candidate for military intervention. And, after all, the military has personnel and equipment that no other entity, public or private, has.

As for border security, there have been periodic calls for a National Guard presence at the Mexican border. Few people will deny that the borders of the United States are very easy to cross and therefore an invitation to those wishing to come into the country. Whether the National Guard could be effective in doing anything about this is an open question. A guardsman commenting on the most recent call doubts it. (See Havoc29 from Kansas.) Nevertheless, policing the borders is essentially a federal responsibility, so why not involve soldiers?

Less clear cut is the case for involving National Guard units in the policing of the nation's communities. The Illinois state legislators who are calling for National Guard intervention on the streets of Chicago failed to mention that deaths from violent crime this year are running only slightly ahead of last year. And yet, with municipalities facing increasing budget pressures, it seems inevitable that police officers and patrols will be cut, perhaps significantly in the coming years.

I'm skeptical that we are now in a sustained economic recovery, and fully expect a second leg down that will leave the world economy in perhaps a decade-long funk. If I'm right, that would mean continuing cuts at all levels of government leading to further problems which will then lead to increasing calls for military assistance for a variety of tasks including those related to public safety and infrastructure repair.

The involvement of the military in many of these missions seems in some ways logical. But that is just the problem. We are shaping public policies and priorities so that the resources to perform these tasks are increasingly unavailable to the civilian federal agencies or to the state and municipal governments responsible for those tasks. Starved of tax revenue or congressional appropriations, these entities have turned to the military for help. In part, this is because the country's politicians have convinced the public that much of government is wasteful and even useless with one very important exception: the military. The lavish funding heaped on the military is not, however, a reflection of the return American society is getting from that funding. Rather it is a consequence of the powerful military-industrial complex that President Eisenhower warned the country against in 1960.

The dangers of this mission creep were evident as far back as 1992 when a prescient U. S. Air Force lieutenent colonel, Charles J. Dunlap Jr., wrote an essay entitled, "The Origins of the American Military Coup of 2012."(PDF) Dunlap foretold that U. S. military involvement in the kinds of activities discussed above would expand with deleterious effects on the ability of the military to fight effectively. The involvement of military personnel in civilian activities, he warned, would also lead to their increasing politicization. Military officers are not used to taking orders from seemingly inefficient, democratically elected bodies which are often slow to act to address even urgent problems. Those officers may seek to circumvent such bodies when they appear to be impeding action on challenges that seem to call out for quick responses. Dunlap even predicted a second, but this time disastrous engagement in the Middle East, the result of a military scattered in its focus and mission. (He guessed the confrontation would be with Iran rather than Iraq, but results are roughly what I think he foresaw.)

With the dangers to the world economy increasing yearly from oil depletion, climate change, mountainous public and private debt and myriad other challenges, it seems likely the United States (and the world) will face continuing economic difficulties including declining or stagnant revenues for government at all levels. With economic difficulties ongoing and the needs of public intensifying, it will be all too tempting to ask the institution likely to suffer the least from funding cuts, namely, the U. S. military, to step in and address problems that overwhelmed local, state and federal governments and agencies cannot.

This is why Dunlap imagined that there will ultimately be little opposition to a military coup if it arrives. After all, by then the military will be performing so many tasks in civilian life that taking direct command of government may well seem the next logical and necessary step to the save the nation.